Monthly Highlights: December 2008

•  East African outperformance driven by market rebounds in Kenya and Mauritius
•  Nigeria under pressure amid heightened currency volatility
•  Declining commodity prices have adverse implications for mining operations across Southern Africa
 

East African outperformance driven by market rebounds in Kenya and Mauritius

East African equity markets rebounded in December with the NSE20 (Kenya) and SEM-7 (Mauritius) rising by +3.97% and +2.16%, respectively. In Kenya, higher remittances, lower import demand and declining domestic inflation led to greater currency stability. Investor sentiment has also begun to improve as evidenced by this month’s listing of Co-operative Bank of Kenya. Looking ahead, Kenyan GDP growth is likely to moderate while declining agricultural production leads to rising import prices and increased risk of inflation. In Mauritius, the newly introduced economic stimulus package should mitigate the slowdown in textiles and tourism although conditions remain challenging overall. In Tanzania, the Central Bank tightened reserve requirements as declining food and energy prices have had little meaningful impact on the nation’s generally high rate of inflation. The Tanzania Composite rose +0.38% in December as foreign interest in Tanzanian financials remains strong following NIC Bank’s bid for a controlling stake in Savings & Finance Commercial Bank Limited.

Nigeria under pressure amid heightened currency volatility

West African equity markets underperformed as the Nigeria Stock Exchange All Share extended its losing streak to ten consecutive months with a -4.78% decline in December. Currency-related selling pressure forced the Central Bank of Nigeria to defend foreign reserves as large-scale repatriation from foreign investors caused the Naira to depreciate by -17.08% versus the US Dollar. Across the foreign exchange markets, open buy back and overnight lending rates rose sharply as cost of funds richened amid increasingly volatile trading conditions. In Ghana, political uncertainty led to equity market weakness as the GSE All Share fell –1.34% on the month. Annual inflation accelerated in November as higher food prices and local demand for foreign currency led to continued depreciation of the Ghanaian Cedi. The Francophone region was West Africa’s lone bright spot in December as the BRVM Composite rebounded +2.39% on the month. Production declines within Cote d’Ivoire have caused a supply/demand imbalance for cocoa and are largely responsible for this month’s +8.56% rise in XOF-USD.

Declining commodity prices have adverse implications for mining operations across Southern Africa

In Southern Africa, equity markets were led lower by Botswana and Zambia as the DCI and LuSE All Share declined by -10.04% and -9.40% respectively. The World Bank’s Global Economic Prospects (GEP) 2009 Report projected significant downward growth revisions for Botswana as export revenues declined on back of softer commodity prices. We agree with the World Bank’s assessment as declining commodity prices have already caused several large mining operations within Botswana to scale down or suspend in recent months. Similarly, Zambian economic prospects continue to deteriorate as this month’s -14.07% decline in copper prices fueled government action aimed at preventing closure of domestic mining operations. Namibia bucked the trend with local shares rising +0.25% as an improving inflation outlook resulted in easier monetary policy. In USD terms, the Namibia Local Index rose by +7.0% in December as the rally in commodity currencies led to ZAR appreciation and a +5.22% rise in NAD/USD.